This is a time we'll remember. It's taken history a little over 20 years to re-expose the cracks in our world system, just as they were before the cold war froze them, apt metaphor indeed. Except that this time, it takes the news much less to reach that many more.

In November we had Wikileaks/Cablegate, now we have Tunisia and Egypt, episodes of violence of one type or another. They all challenge the status qvo, which has its own defenders. For one, there are the current elites, who'd been able to stage a smooth show until the 2008 Crisis, or until the most recent onset of the crisis in 2008. Up until 2008, genetically modified food and cheap Chinese imports had kept the hoi polloi climbing the pyramid of growth in this or that market, the up and coming could still find a place at the lower tables, whereas the true elites were taxing the addiction of democracies to credit financed pyramidal-growth.

The underlined text is the least exposed, topmost, yet more interesting, part of a 3-layered machinery whereby to each his own. The low strata provide the labor and standing army in exchange for a chance at The American Dream, the idea that tomorrow ought to be better than today, given that you play by the rules, regardless of the initial conditions. It's a social compact of sorts to which most still subscribe to, in form if not in spirit. In other parts of the world with comparable per capita/GDP metrics, the compact is not framed in such probabilistic terms but actual indemnification--this also goes by the name of welfare state, a creation of contractual parties enlightened by experience. So until 2008, the American Dream had been in sight for many, though people in places like Ohio may take exception--for them, the Crisis started in 2000-2001. We were conditioned to measure our betterment in terms of stuff acquired on credit, but that's part of the status qvo ante. When the magic behind credit is questioned, we all look at a house of cards.

What was the top stratum doing? They have privatized just about everything, including war, the means to persuade the elected few and, most importantly, the money supply. Some could argue that The Fed has been private since its inception, for how else to keep the democratically elected populist from printing more money? To which I'd say, there used to be rules restricting self-serving abuse by the money handlers themselves. Also, more or less functioning markets were supposed to operate and keep the whole financial industry efficient, if not effective, at allocating the money resource in the economy. To return to privatizing everything, it increases liquidity, reduces waste, generates commissions; what's not to like about it? Indeed, it puts The American Dream on the market autopilot. Except that for whatever reasons, and they vary from human nature to the late stage of our capitalism, the money handlers have gone far beyond taxing our addiction for cheap credit into generating virtual capital, orders of magnitude in excess to the real economies of the world combined, and transactions for their own sake. In other words, increased money supply and transactions leading to more commissions--if measured by the banksters' bonuses alone, quite an expensive addiction to have. So, those private entities that were supposed to keep the democratic government fiscally honest must have hijacked the game along the way. Never mind the role of the state, read something about regulatory capture and the cycle is complete.

To open a parenthesis, the 2008 Crisis has reached even those whose money supply has not been privatized. Indeed, they needed growth for an aging population just about as much as we needed for our pyramids, so they had to join in while the music was playing. Who doesn't find it ironic that in Ireland, for example, the population has to suffer because of imprudent private banks' lending practices and not because of some over-generous welfare scheme? These are all details, which the little people may someday put together into a call to action, unless real reform is undertaken. So far, we've been headed where the theorists of socio-economics have told as for about 160 years. Can capitalism regenerate itself? Better yet, what will it morph into?

As I wrote here in the past, downward adjustment is on the books for us. Obama's recently calling for increased competitiveness means that our individual incomes would go down and we can kiss goodbye whatever is left of the welfare state; let's just forget about the alternative of all turning into neurosurgeons or microprocessor designers.(*) An oil crisis brought about by street movements in the Arab world can be a good external diversion to spring the whole west back into action on behalf of capitalism and value$.(**) Indeed, how do you defy the cycle if not by some expansion? If the financial expansion has run its course, what's left? We should also keep in mind the lesson of the late British Empire, at twilight military expansionism speeds things up instead of allowing the belligerent to choose solutions. We cannot bankroll Pax Americana far into the 21 century.

Yes, I am all for supporting the consequences of our pyramidal dreams, meaning downward corrections and/or inflation, but so far I find the idea of justice lacking in the process. Reform ought to be real and aimed at the practices of the top layer, just as much if not more than the base. Otherwise, officially I am told that 2011 will have been already better!

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(*) Lawrence Summers, former Obama's officially economy expert, has given an interview about the way he sees the future; here's an excerpt from NYTimes:

The key to higher employment, he said, is increasing the demand for the goods and services produced by American companies. “You don’t hire more waiters unless the waiters you have in your restaurants have more work than they can handle,” he said. “There’s a continuing shortage of demand, and that’s the root cause of unemployment. It’s the root cause of low-capacity utilization…What you need to do is have more output with more people, and the way you have more output with more people is you need people who want to buy that output, and that’s why it comes back to demand.”

This should give us all an indication of what competitive means to our leaders, waiter-level incomes/benefits. As well, we won't come out of unemployment unless willing to get such jobs. That may well be so for us, what about THEM? THOSE who restart the economy of waiters-based models.(**) The events in Tunisia and Egypt are most puzzling. I don't believe in street movements beyond drama and opportunity (lost or made). The west has grown too dependent on oil in its own terms, to which the US added dollar-denominated trade. The standing question of the moment is cui prodest, or what's behind? As for the role of (internet) technology in democratizing, allow me to take exception. Moreover, the voting experiment in Palestine yielded populist-Islamics, not the garden variety politician our elite has been so effective at co-opting.

As for the "value$" in question, truth be told, the might dollar has turned us oblivious to many of our deficiencies--see for example the reflex call for money each time we are faced with a problem--thus we stopped learning. The west has gone along, more or less (see the 1971 decoupling of the dollar from gold), for all kinds of reasons, e.g., red scare, security clients, markets, etc. All in all, there has been no one to fundamentally question what we were doing. I would not take this as guarantee for future behavior.

Posted by
fCh

9 comments:

Anonymous
said...

indeed, we are all heading through very interesting times/that's code-speak for saying no-one knows where we are going...except for a few, maybe?!

As with everything else it's China's fault. Blame it on our bogey boy China. Let me tell you why this has something to do with China.

For the last 30 years under Mubarak's watch and U.S. government's support, the common folks in Egypt have been patiently waiting for a better life. And if better life is not to be, the individual was not meant to be. But the same 30 years the world has witnessed the transformation of Asian countries, in particular, China, from impoverished to vibrant and thriving economies, where millions are lifted out of poverty; it makes Tunisians, Egyptians and other poor Middle Easterners wonder: if I'm not meant to be, maybe the government was never meant to be either. Witnessing the steady decline of a real superpower that is the U.S., their faith in democracy no longer holds the faith for a better life and a promise of a better future. Inspired by China's transformation, and facing the harsh reality of daily life, the fear of a hopeless future prompted the people to take matters into their hands and onto the streets. In the back of their minds, they no longer believe individual effort could lift them out of poverty under the current government or even the system of government. They have given Mubarak more patience than he deserves because for 30 longs years, Mubarak delivered nothing. And if democracy couldn't deliver, maybe Islam might. And if ancient China could so could ancient Egypt.

There you see, as Paul Krugman likes to do, blame it on China, the upstart trouble maker which is giving poor folks bad ideas.

The Pledge of Malfeasance:I pledge allegiance to the Dollar and to the Plutocracy for which it stands. One Corpor-nation, under the Almighty Buck, too big to be divisible, with lobbyists, Supreme Court Justices, bought-out media, bailouts and falsely pretexted war profiteering paid for by all. (To be solemnly sworn while placing hand over wallet).

The real issue is Egypt's population growth rate, which at 2% is unsustainable. Egypt is severely overpopulated, with only a small strip of land about the Nile being really habitable. And this strip is packed with people.

Population growth of 2% drains an economy. Just to keep living standards constant, Egypt must double the number of schools and hospitals every 25 years. And with a work force unable to produce high value goods for export, such growth of services quickly becomes impossible.

The straw that is breaking the camel's back in this case is food prices. Inflation of food prices is 17% in Egypt. This makes for a desperate population.

Why the high birth rate? Part of it may be the religions which place a high importance on child-bearing for women. The most serious of Mubarak's failures is his inability to get population growth under control. But it is unclear that a more democratic regime would be doing a better job.

Revolutions start out with idealism but often end with a more repressive regime than what was present before. Thus hopes for democracy may be dashed as Egypt like many other Arab countries finds its revolution overtaken by religious fanatics.

Democracy can only be effective if the electorate can accept certain unpleasant facts about life in the 21st century. One of those is that the world is running out of resources, and those countries which do not control population growth through policy will find it controlled through higher death rates. Malthus was right, and Egypt will demonstrate that to those whose eyes are open.

We are not having a normal recession. We are suffering from a structural decline in our economy, and our massive unemployment problem will not be solved by keeping interest rates low.

Our economy has reached a tipping point of sorts, and it is not going to have a sustained recovery, regardless of interest rates or other monetary policies initiated by the Fed or anyone else.

We have sent too many factories and too many jobs to China and other low-wage countries. The lifeblood of our economy has been sucked from it by big corporations seeking ever-increasing quarterly profits, without any thought to the millions of Americans left jobless and the long-term damage being done to our economy.

Industrialization was the engine which created our middle class. And without industrialization, our middle class will cease to exist. And, eventually, there will not be many Americans left who can afford to buy the even the cheap products made in China, if our politicians keep allowing our corporations destroy jobs in our economy.

And at that point, our short-sighted corporations will have succeeded in killing the goose which laid the golden American eggs.